The prospect of utilizing alternative investments in defined contribution plans has been there for years. What changed this fall was the volume—and the urgency.
President Donald Trump’s August executive order directing the Department of Labor to expand—“democratize,” according to the order’s text—access to alternative assets for 401(k) investors has pushed recordkeepers, asset managers and advisers into planning mode, even as plan sponsors remain wary of the fiduciary and litigation risks that come with adding less-liquid, harder-to-value investments to a daily-valued system.
Scott Duba, chief investment officer and president of wealth management at Prime Capital Financial, says “educate, assess and advise,” are the key pillars for adding alts to DC plans, arguing that advisers must help sponsors understand both the benefits of including the offerings, such as diversification and access to private companies, as well as drawbacks, such as illiquidity and complexity.
“While it may seem unimportant for people to fully understand their investments as long as they perform, this undermines trust,” Duba says. “The more participants understand what and why they’re investing, the more confident they feel about their retirement plans. Simply saying, ‘Trust me’ is less compelling than showing them they’re investing in top American companies—some public, some private—and explaining how these opportunities work.”
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